From a volume standpoint, the reverse mortgage industry has seen a decline in recent months and years.
The number of reverse mortgages closed during the most recent month has receded substantially to 4,243 loans endorsed, with a year-over year decline of 8.4% of the first four months of the year, according to industry data aggregator Reverse Market Insight.
While most do not expect volume to match its pre-recession highs, in comparisons over time periods as recently as 2014, annual volume is falling.
“We have seen quite an impact from financial assessment,” said Reverse Market Insight President and Founder John Lunde during the National Reverse Mortgage Lenders Association conference in Huntington Beach, Calif. this week. “These are good things for borrowers… but thinking about the full effect of product changes, principal limit reductions and quite a few lender exits, as we tally these it starts to look a little bit daunting.”
There are several causes of the stagnation in the market currently, Lunde suggests, but they are areas where lenders and originators can work to achieve new growth.
1. New entrants
In past years, the lender landscape was supported by large, national companies such as Financial Freedom and Wells Fargo. Today, the landscape is more specialized, but new entrants are not making up for the losses experienced when large lenders exited the business in recent years.
“The companies that entered later have contributed less volume,” Lunde said. “We need to focus on brining companies in; we need distribution and more support to grow the industry.”
2. Growth of the HECM for Purchase market
“We need to keep working with Realtors and other folks involved in that process to bring more of those transactions into the reverse mortgage world,” Lunde said.
The reverse mortgage for purchase product has seen success in specific markets, including several zip codes in close proximity to one another in Utah. There, builders and others have embraced the reverse mortgage program.
“It shows what can be done when you do get critical acceptance by some of the key folks in the process,” Lunde said.
3. Financial planning awareness
Fewer than 20% of reverse mortgages today draw less than 30% of their proceeds upfront, according to data presented by RMI. Low utilization adjustable rate reverse mortgages will help achieve market growth Lunde said.
“These are borrowers who are getting the reverse mortgage today not because they need all the money today,” he said. “It’s planning ahead today and thinking about what’s coming down the road in the next five to 10 or 15 years and thinking about how to spend down assets in a way that is sustainable.”
Research is helping this effort, with several financial planning thought leaders having conducted recent studies to show the ways in which reverse mortgages can help as part of a comprehensive retirement strategy.
“This enables financial planning strategies,” Lunde said.
The industry is not likely to rebound to its pre-recession volume levels in the near term, but targeting these growth areas can help achieve slow and measured growth as seen in some markets around the country.
“We’re planting seeds,” Lunde said. “We’re not going to harvest them today, but look at places where there are pockets of potential that are already generating loans.
Written by Elizabeth Ecker